• Alphabet, Inc NASDAQ:GOOG (GOOG) shares were down around 7% overnight on a poorly received AI conference.
  • Companies expected to benefit from the AI boom immediately were steady and higher, including NVIDIA Corp NASDAQ:NVDA (NVDA), up 0.1%.
  • The winners and losers of this first wave in the boom in AI products and applications are being drawn up by the stock market.

Google

GOOG has been one of the largest investors in AI in the last decade; however, its accumulated intellectual property was not enough to ward off the sellers in the market overnight Wednesday.

The stock market has always favoured easy wins and fast money over durable assets and longer-term investing horizons.

GOOG’s strategy of a slow and steady approach to AI and AI safety, developing a scaled competitive fortress in the sector before finding consumer applications, is currently hurting its stock price.

While Microsoft NASDAQ:MSFT (MSFT) and NVDA have entered the fray through ChatGPT and AI-ready cloud processing, GOOG is biding its time on the major internet search and wider application releases.

The market emphatically stated which strategy it preferred today, sending GOOG lower by 7%, MSFT steady, and NVDA marginally higher.

 

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Market conditions

Persistent inflation driven by a tight labour market has the market fearing more monetary policy intervention by the Fed. That would lead to US dollar strength and weakness in markets sensitive to interest rate changes, particularly technology stocks.

The technology-heavy NASDAQ composite index was down about 1.8% overnight. That was, in large part, due to monetary policy concerns. To a lesser extent, it was the fear that some companies would be left behind in the AI boom.

Early winners and losers

The early winners in the quest for market share in the technology sector have been those willing to run with what they’ve got.

  • OpenAI’s ChatGPT has set a new record as the fastest-adopted consumer application in the history of the internet.
  • MSFT’s $10b investment in OpenAI is proving a shrewd investment. The market is now concerned with the pace of application development in MSFT’s major competitors, including GOOG.
  • GOOG’s hotly anticipated AI conference did little to assuage those fears. GOOG decided to maintain its strategy of building upon existing AI models in development before finding wider applications.

The earlier release by OpenAI of its ChatGPT, with improvements anticipated, has caught the imagination of the market and investors. MSFT immediately found an application for ChatGPT in the hitherto dead intellectual property of the search engine Bing.

Providing a massive boost to clicks to an otherwise discarded asset is about as big a risk-free business move as one can make. Whether MSFT can translate the newly found web traffic into a share of GOOG’s advertising revenue remains to be seen.

Brave new world

Technology stocks are performing well this year. S&P/ASX 200 Information Technology ^XIJ:ASX (XIJ) is up 7% this year. Stabilised interest rates and bubbling excitement over AI product development will provide further tailwinds to technology stocks.

Those who can find applications and develop market-ready products incorporating AI will be the early winners in this segment but shifting behemoths such as Alphabet and Meta Platforms (NASDAQ:META) from their perches as kings of advertising revenue will be more challenging.

A more difficult hurdle to overcome for the competition may be when GOOG and META unleash the powerful models they’ve been developing and holding back for years.